The German Social Welfare The German Social Welfare SystemSystem

Euro 200: France, Germany and Modern Europe

IntroductionIntroduction

The social welfare system of a state …– is a key factor for the economy.– shapes the social structure.– prevents poverty.

Euro 200: France, Germany and Modern Europe

IntroductionIntroduction

– Role of Social Policy in the EU– Concepts to describe different welfare

states– Historic development of the German

welfare system and its basic characteristics– Situation of today

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The EU – Social AgendaThe EU – Social Agenda

Lisbon Agenda 2000 / Review 2005: – Focus on Growth and Jobs– 20 million jobs, 70% employment rate by

2010Social Agenda: European labour market

– enable workers to take pension and social security entitlements with them

– support the Member States in reforming pensions and health care

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The EU - The Charter of The EU - The Charter of Fundamental Rights (2000)Fundamental Rights (2000)

Article 33Family and professional life

1. […] 2. To reconcile family and professional life,

everyone shall have the right to protection from dismissal for a reason connected with maternity and the right to paid maternity leave and to parental leave following the birth or adoption of a child.

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The EU - The Charter of The EU - The Charter of Fundamental Rights (2000)Fundamental Rights (2000)

Article 34Social security and social assistance

1. The Union recognises and respects the entitlement to social security benefits and social services providing protection in cases such as maternity, illness, industrial accidents, dependency or old age, and in the case of loss of employment, in accordance with the rules laid down by Community law and national laws and practices.

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Describing Welfare StatesDescribing Welfare States

Three Types of Welfare States

–Liberal–Social-democratic–Conservative

(Esping-Andersen (1990): The Three Worlds of Welfare Capitalism)

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Liberal Welfare StatesLiberal Welfare States

Market-based social security schemesPrivate schemesMeans-testing Limited benefits“[…] a blend of a relative equality of poverty

among state-welfare recipients, market differentiated welfare among the majorities.” (Esping-Andersen, p.27)

Examples: USA, UK

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Social-democraticSocial-democratic Welfare Welfare StatesStates

Universalism and equality Redistribution of wealthHigh benefitsState organized childcareEncourage women to work Examples: Scandinavian countries

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Conservative Welfare States Conservative Welfare States

Maintain the differences between social classes

No redistribution of wealthTraditional role models are protectedExample: Germany

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German Social Welfare System German Social Welfare System

Unemployment insuranceHealth care insurancePension insuranceLong-term care insurance

Social assistance

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Bismarck Area and Weimar Bismarck Area and Weimar RepublicRepublic

1883 Workers’ health insurance1884 Industrial accident insurance1889 Invalidity and old-age insurance1911 Reich insurance system extended to civil

servants / white-collar workers1927 Unemployment insurance

Characteristics: – Contribution financed, not tax financed, no pay-as-you-go– Contributions shared: 50% paid by employer, 50% by

employee– Widely supported by middle class

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Post war GermanyPost war Germany Konrad Adenauer (1949-1963 ), CDU Konrad Adenauer (1949-1963 ), CDU Ludwig Erhardt (1963 – 1966), CDULudwig Erhardt (1963 – 1966), CDU

The Social market economy(Alfred Müller Armack)“A system which allowed business and finance

to operate under the conditions of free market trading yet which worked within the legislative framework of industrial democracy at plant, company and industry level and within a statutory social security scheme seemed to enjoy the best of both worlds.” (Nigel Reeves, 1995, 213)

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The Social Market EconomyThe Social Market EconomyDie soziale Marktwirtschaft Die soziale Marktwirtschaft

Free market tradingThe industrial harmony

Laws of CodeterminationMitbestimmungsgesetz 1951Betriebsverfassungsgesetz 1952

Monetary policy of the Bundesbank (Federal Bank of Germany)

Extensive social security scheme

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Post War Germany - Post War Germany - The Economic MiracleThe Economic Miracle

1957 Pension reform (Rentenreformgesetz)– Pay-as-you-go principle– Pension adjustments linked to gross wages

Characteristics of the welfare system:– Based on traditional role models:

Women as mothers and carers, male breadwinner, “family wage” / splitting of incomefull-employment, standard employments

– Core aim: securing the achieved standard of living of families

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Growth of the government Growth of the government sector from the 60s to mid 70ssector from the 60s to mid 70s

Grand Coalition (1966-1969), SPD and FDP (1969–1982)Grand Coalition (1966-1969), SPD and FDP (1969–1982)

1966 / 67 Recession: government investment programme (7.5 billion DM)

1967 Stability Law (Law for the Promotion of Economic Stability and Growth)

Public sector grew about 1.3 million employees between 1960-1973 (~60%)

1968 Average unemployment benefit: 68% of prior net wage

1972 Pension reform law: age of entitlement 63

The Social Expenditure Rate The Social Expenditure Rate SozialleistungsquoteSozialleistungsquote

5

10

15

20

25

30

35

197

0

197

5

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

200

1

200

2

Social expenditure rate in %

Source: Wewer, G. (1998), Bilanz der Ära Kohl, p. 348, Source: Wewer, G. (1998), Bilanz der Ära Kohl, p. 348, Statistisches BundesamtStatistisches Bundesamt

Rolling back the welfare state in Rolling back the welfare state in the 80s?the 80s?

Helmut Kohl (1982 – 1998), CDUHelmut Kohl (1982 – 1998), CDU

1992 Pension reform: pension adjustments linked to the net wage, age of entitlement 65

1992 Social expenditure rate: ~70% in the former GDR

1995 Long-term / nursery care insurance, pay-as-you-go (Pflegeversicherung)

The Safety NetThe Safety Net

Social security– Pension– Unemployment– Health care– Long-term / nursery

care Insurance-based Wage-related benefits Financed by

contributions “Conservative”

Social assistance– Alleviation of the poor

Means-testedFixed levels of benefitsTax financed “Liberal”

Social Assistance RateSocial Assistance Rate

1)1) Social assistance rate: claimants of social assistance not living in Social assistance rate: claimants of social assistance not living in care institutions / populationcare institutions / population

2)2) Before 1991: former FRGBefore 1991: former FRGSource: Stastisches Bundesamt (2003) Sozialhilfe in Deutschland,Source: Stastisches Bundesamt (2003) Sozialhilfe in Deutschland,http://www.destatis.de/presse/deutsch/pk/2003/sozialhilfe_2003i.pdf

The Situation of today – ReformsThe Situation of today – ReformsGerhard Schröder (1998-2005), SPDGerhard Schröder (1998-2005), SPD

„In an ageing society it is fair to expect people to take more responsibility for themselves, especially concerning health care and pensions. It is fair not to cripple citizens‘ willingnes to work by excessive non-labour costs“ (Agenda 2010,p.4)

2002: Gesetz zur Reform der Rentenversicherung („Riester“-pension): – Promotion of capital-covered private pensions,– Times of child-raising taken into account– no adjustments of pensions in 2004

2004: Reform of Health Care: – quarterly fee of 10 €

“ “Harz”-Laws Harz”-Laws Hartz I (2001):

– Personnel Service Agencies– Job-AQTIV Laws

Hartz II (2003): – Jobcenters– “Ich-AGs” / “Me-plcs”: support for one-person start-ups

Hartz III (2004):– Restructuring and renaming of the Bundesanstalt für

Arbeit (= Bundesagentur für Arbeit, Federal employment agency)

Hartz IV (2005):– Means-tested Unemployment Benefit II

The Social-insurance SchemeThe Social-insurance SchemePension Unemployment Health Long-term

care

Contrib.

19.5 % 6.5% ~14.3% 1.7%

Unemployment benefit

Unemployment assistance

(Unemployment benefit (II) 2005)

Compulsory if wage < 3.862,50 € / month

When > 65 years

after 12 months of contributions, for 12 months

after 12 months of unemployment, all jobless persons able to work

How much?

~70 % of final net pay

~67 % of final net pay (one child), for 12 months

53% of final net wage

(345 € West / 331 € East, plus rent)

everybody gets the same

Level I: 345 € Level III:

1.432 €

wage-related

wage-related wage-related

(fixed level,

means-tested)

“principle of solidarity”

care at home promoted